Brazil is ranked 116th in World Bank’s Ease of doing business ranking. The infrastructure changes that have been done over the past few years have helped Brazil move up in the listing.
It can be seen that Brazil ranks the highest in Getting Electricity (14th) and the lowest in Paying Taxes.
It can be seen that the Brazilian government has been bringing out a lot of policies in order to makethe business environment easier. There have been vast changes in the category of resolving insolvency and as a result it has moved further towards the standards of the developed countries.
Business Structure: Organizational and Managerial Factors
Most companies in Brazil tend to be organized and stick to strict hierarchy in the organization. The information flows in a strict and structured way up down the various chains of command. Most of the decisions are made by the top most officials in the organization chart. While dealing with a Brazilian company it is always best to first understand the flow of command in the firm and get to know who makes the ultimate decision. Since most of the time a lot of foreign firms waste their time negotiating with someone who is not the deciding authority. Another point to remember is that most of the time the organizational chart shown by a Brazilian firm does not exactly depict the flow of command. There may be a few who hold more power than the person above them due to various reasons like internal politics, power of personal relationships etc.
Brazil was under the rule of the Portuguese until the early 1800s. It was discovered by the Portuguese explorer Pedro Alvares Cabral. Brazil was broken into colonies and the colonies contributed their revenues to both the colony and the state. Coffee, Sugar and gold were the primary products exported from Brazil during this period. As the 18th century dawned Brazil was influenced by its neighboring states and fought for its independence. On September 7, 1822 Brazil was declared independence and was led by King João’s son Pedro as the regent. He was a liberal leader. He promoted education, improved communications, developed agriculture and encouraged immigration from Europe. The coffee boom began during his period. He abolished slavery. After Pedro Brazil was under the rule of both communist ruler, military rulers like Castello Branco who was pro-US and pro capitalist ruler like De Silva. Cardoso played an important role in the history of Brazil. He was at the helm of Plano Real which drastically reduced the inflation. The president , Dilam Rousseff of the Worker’s party, followed De silva in 2011. Many were skeptical about her being the candidate to fill De Silva’s shoes but she has been quite effective.
The population of Brazil is about 198.7million with most of them in the South East region (42.58%) and the north east region (27.50%). The North and the North east are underdeveloped regions of the country. The industrial and the commercial activities are concentrated in the south and the south eastern regions. Despite the vast territory of Brazil more than 80% of its population lives in the urban areas. The major cities of Brazil are São Paulo, Rio de Janeiro and Salvador.
Brazil is a federal presidential representative democratic republic state. The president acts as the head of both the state and the government. The current President is President Dilma Rousseff, who came into power in 2011 after President De Silva. She belongs to the Workers’ Party and she is up for elections this year. She was the first woman president of Brazil. She faced a lot of challenges during a four year period.
2013 protests in Brazil:
The 2013 protest was also called the 2013 federation cup riots or june journeys or the V for Vinegar Movement. This is an ongoing public demonstration in most of the Brazilian cities led by the MOVIMENTO PASSE LIVRE (Free Fare Movement). The riot started off as a small protest against the increase in bus, air and metro tickets. But as time and the support by masses increased it went on to become a riot against bigger problems like corruption and police brutality. During this riot President Rousseff was also blamed for using public funds for preparations for the 2014 World Cup. There was general dissatisfaction among the masses about the lack of social services in the country.
The Presidential elections in Brazil will be held on October 5, 2014. There are four contenders: Dilma Rouseseff of the Workers’ Party, Eduardo Campos of the Brazilian Socialist Party, Aécio Neves of Brazilian Social Democracy Party and Randolfe Rodrigues of the Socialism and Freedom Party.
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Prior to the June protests, current President Rousseff had exceeded approval ratings of 60%. But after the riots the ratings fell to a devastating 38%. But the polls increased to about 53% after her promise of spending 50 Brazilian reais in infrastructure. As of now President Rousseff is leading the polls.
The currency of Brazil is the Brazilian Real. The GDP growth rate is about 1.9%. The GDP(PPP) per capita is about USD 11340. Inflation rate is about 5.68%. The post war Brazilian economic policy has been designed to accept high levels of inflation. It was found that high levels of government deficit were the reason for the inflation. Plano real and the new currency have reduced the inflation drastically.
The GDP of Brazil is about USD 2.435trillion and has a current account deficit of 3.66% of the GDP.
Brazil has always been a welfare state. With poilicies like the Bolosa Familia the state provides numerous benefit offerings to it citizens. This helped in bringing thousands of people out of poverty. The north eastern region that is poorest in Brazil was the most beneficial out of this program. Brazil was once called the Belinda, a country where a small part of the country is well off like Belgium and the rest are poor like India. But this is fast changing thanks to welfare programs like Bolsa familia and Fome Zero. About 50 million people were pulled out of poverty. This has helped the country climd the imcome level ladder internationally. A country that once looked like Congo looks like the Brazil that everyone wished to see. The income level of the country has increased substantially.
Despite this there has been a slowdown in the country’s economic growth due to various reasons such as lack of proper infrastructure and withholding of investments by investors. The 2013 riots enhanced this further since the investors are skeptical about investing in a country that is going through a civil unrest. The drop in investments was the main reason for the slowdown in the economic growth. Custo Brazil or the “Brazil Cost” is one of the primary reasons for the reduction in investments. Brazil Cost includes high taxes, red tape, faulty infrastructure and scarcity of qualified labor.
The 2014 presidential election of Brazil might have an impact on the investment scenario of the Brazilian economy. Many investors are withholding their investments, waiting for the new government to form.
The Brazilian economy was a consumption led one for the past four years. It followed what is now popularly called as the 3Cs model ( credit, consumption and commodities).Now that he demand has been created and people’s livelihood has become better they expect more. The per capita income of the country has increased which means that he lifestyle has changed. Now that they make a better living than before they are not just satisfied with the basic necessities but they want better roads, airports, ports, etc. Thus the government has to shift to a more pro infrastructure investment policies.
The 2013 riots in Sao Paolo was solely due to the lack of infrastructure and increase in bus, air and metro tickets. Following which President Rousseff promised to spend 50 million Reais in improving urban public transportation.
Sectors like air transportation, telecom industry, oil and gas and mining have been experiencing higher than average over the last few years. The government of Brazil also spent around $470 million in developing the airports, roads, ports, energy generation and distribution systems as well as the infrastructure necessary for the 2014 World Cup and 2016 Olympics.
Petrobas, the Brazilian oil company, is planning for expansion and this will create a lot of opportunities for global businesses. The reserves found in 2006 and 2007 exceeded 60 million barrels which put Brazil among the top oil producing companies.
Brazil is also one of the largest IT markets among the other emerging markets. The largest spending in this sector was the telecom followed by IT services and computing hardware. Big events like the papal visit in 2013 and World Youth Day created a lot of opportunities the past years. And future events like the 2016 Olympics and 2014 Football world cup is expected to create even wider platform for markets to flourish.
Brazil is the leader among the Latin American countries for FDI. It contributed about 43.8% of the total investments in the region in 2011. Its geographical location is an important factor for this rise in investments. The economy of Brazil is diversified and hence is an attractive location for investments. It has abundant natural resources, flourishing tourism and a wide range of exports. A large portion of the investments into the country is in the IT sector and the industrial sector comes second to it.
Risks and Potential Bottlenecks:
Infrastructure has always been a problem in Brazil. In the past government spending on infrastructure was about 0.6% of the GDP. This was way lesser than what would be required for a 4.5% GDP growth rate. Realizing this, the government of Brazil has decided to invest heavily in infrastructure. Although this sounds reassuring the reality is that most of the projects are still in the analysis stage and execution of public investments have proven to be ineffective. The airports and roads are congested, ports are clogged, the railroads are obsolete and the other forms of transportations are inadequate. The sales of light vehicles have been five times higher than that ten years ago thus increasing existing urban traffic. However the government does not seem to have recognized this, as the investments have not been in pace with the growing economic development. The inefficiencies created due to infrastructure bottlenecks subtract about 10-15% of the country’s GDP.
The employee interests in Brazil are protected by its constitution under the Consolidation of Labor Laws and the Social Security funding and Benefit Plan. There are mainly four labor unions in Brazil.
- Sindicato dos bancários ( banker’s Assoscation)
- Sindicato dos metalúrgicos ( metal workers’ assosciation)
- Sindicato dos comerciários ( Commerce Workers’ Assosciation)
- Sindicato dos professores (Teachers’ Union)
The labor unions for liberal professionals are not very well known due to its small number of participants. Every labor union is associated with one of the three main organizations:
- CUT- Central única dos Trabalhadores
- Conlutas- Central Sindical e Popular- Coordenaçao Nacional de Lutas
- Força Sindical
Brazil’s capital Market development is a key issue in fostering savings and investment. The savings and investment levels of Brazil as a percentage of GDP are very low. Thus developing the capital markets would provide incentive for savings and help in allocating the investments efficiently. Developing the liquid markets would also mean that the absorptivity capacity of the economy gets better.
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Most of Brazil’s capital markets are mainly focused on short term instruments. It can be seen that the yieldd curve is flat indicating that the short term interest rates are high and the degree of indexation of debt holders are high too. This flat yield curve contributes to a low secondary market turnover ratio thereby restricting overall market development.
Brazil’s stock exchange is BOVESPA. The Brazilian equity market has been growing at a fast rate both in market capitalization and transaction volumes. The equity market capitalization of Brazil as percentage of its GDP was about 49.62% in 2011. This included investments form all kinds of investors like individuals, institutional investors, financial institutions and foreign investors. The NOVA MERCADO was a list of corporate governance practices that have to be followed by the companies that are trading on the BOVESPA in addition to the practices that are to be followed by the law. The NOVA MERCADO helped in raising the standards of corporate governance practices in the Brazilian companies. It brought transparency and minority shareholder protection as a requirement in the way the companies ran their organizations. Despite this the number of companies listed on the BOVESPA is very less. Especially industry composition in the stock exchange is focused only in some key areas. Overall the equity market development in Brazil is very low when compared to its neighbors and other developed countries (Chile, Colombia, Mexico, Peru, US, UK, Germany, China and Korea).
Foem Zero is a government program started by President De Silva in order to eradicate hunger and extreme poverty in Brazil. It covers a wide range of fields such as education by starting schools in remote areas, low cost restaurants ( similar to soup kitchens in the US), creating water cisterns in Brail’s semi-arid areas, educating people about healthy eating habits, distributing free medicine, eradicating malnutrition, and giving access to microcredit. There are a few criticisms about the program. Some experts say that the program did not take effective steps to combat the income inequality in Brazil.
Bolsa Familia is the largest social welfare program in the world. Around 26% of Brazil’s population benefit out of this program. About 13.8 million families are benefited by this scheme. It was under President De Silva under the Fome Zero program. The main aim of this program is to eradicate poverty and hunger in Brazil. Under this program, families below a certain income level receive cash payments from the government on the condition that the children be sent to school and vaccinated regularly. It has been 11 years since the program was started and it still continues to benefit most of Brazilian citizens. It gives 10 to 100 Euros per month depending on the income level of the family and the size of the family.
Although the scheme has been beneficial to millions of family there are criticisms about its effect on productivity on the country. The scheme was able to pull most of Brazilian population out of poverty but there has been a decline in the factor productivity of the country.
Although these programs have reduced the poverty levels significantly there have been criticisms that these programs are being used as an electoral strategy by the Workers’ party and there is no real benefit out of them.
This shows that there is definite hierarchical work environment in organizations.
The telecom sector is the most promising sector in Brazil. Brazil has modern technologies in the center and the south portion of the country but the north and the north eastern regions lack even the basic analog PSTN telephone lines. The government is trying to correct this. The total market revenue in the telecom industry is about $116billion. Within the telecom industry the telecom equipment market is the largest with a total market size of $13.674millions.
The Brazilian market for telecommunications is expected to grow. The mobile market is on the verge of a boom. The number of Facebook and twitter users has increased vastly. Brazil has 50 million clients on Facebook, with a development rate of 144% for every year, making it the second biggest nation on Facebook after the U.S. The Apple Application Store in Brazil as of late started offering games in April 2012, and not just is Brazil now the greatest application advertises in Latin America, yet its year-on-year income outpaced the U.S. Application Store’s income development. Brazilian application deals developed 83% in the most recent year, contrasted with 44% development in the U.S. Brazil positions sixth on the planet for App Store income development. Information expenses costs are dropping in Brazil as bearers offer aggressive estimating arrangements. With prepaid arrangements as the most famous model, the significant carriers are putting forth information plans from 20 to 25 cents for every day. A few carriers are actually offering no-charge access to information substantial administrations like versatile feature streaming. Because of government backing as barters that sway telecom transporters to buy 4G data transfer capacity at focused costs, Brazil is laying the preparation for across the board 4g right to gain entrance. Each of the four of Brazil’s significant telecom organizations acquired licenses for 4G rapid Internet capacities in the late closeout and have vowed to prepared their 4G systems by 2013, preceding the World Cup. Over the long run, these telecoms organizations are relied upon to offer 4g in all Brazilian urban communities with a populace of 100,000 or all the more by the end of 2016.
Brazil is creating the conditions to have a prevailing portable market: the legislature is supporting new activities, imperative Oems have plants in the nation and the customer base is monstrous. As its put in the worldwide versatile business develops through the following few years, designers, ambitious people and gurus might be savvy to acquire a stake in this versatile outskirts before the aggressive scene gets immersed.
- Akwan Information Technology
- Global Village telecom
- TIM Brasil
- Brasil Telecom
- Intelig Telecom
- Oi Telecommunications
- Star One
Why Brazil? :
Brazil is one of the fast growing economies in the world. The huge population creates a large market for any kind of industry. Demand has already been created and any new product will be accepted. Although the economic growth has slowed down the upcoming infrastructure projects will give a reason for the investors to invest in the country. President Rousseff, after the june riots, has promised to spend about 50 million reais in infrastructure. Upcoming event like the 2014 Football World Cup and the 2016 Olympics will create a lot of job opportunities in the country. The property market is also booming as the livelihoods of people have become better they are not just satisfied with mediocre things but they crave for more thus generating ore demand for properties. Tourism is also a booming sector in Brazil. More specifically ecotourism is being vigorously promoted in Brazil and it is one of the world’s fast growing industries. Thus these reasons makes Brazil an attractive market for investment.